Many benefits come with choosing to pay health care claims yourself rather than opting for a fully-insured health plan. However, when deciding what type of self-insurance is right for your organization, you must first understand the differences between level-funding and self-funding. (Read testimonials from HPS clients here.)
This blog post will detail where level-funding wins over self-funding to help you make the best choice for your benefit plan.
Benefits Unique to Level Funding
Predictability and Cash Flow
With level-funding, you make equal deposits throughout the year, making it easy to plan costs ahead of time and not get caught off-guard by large claims. A TPA provides a customized monthly amount to your organization for the plan year based on three things: claims allowance, TPA fee and stop-loss premiums. This means that you never have to pay more than the predetermined monthly amount.
If an extremely large individual or group claims come in, specific or aggregate stop-loss covers them. Therefore, stop-loss is an extremely important part of a level-funded plan.
At the end of the plan year, if claims paid out are less than what you have paid in, the difference is returned to your organization. Some plans may retain a portion of the savings as an additional administrative fee. Unlike with fully-insured plans, you are rewarded with monetary reimbursement when claims costs are lower than expected for the contract period.
Why Suggest Level-Funding to Clients
Level-funding differs from self-funding in that your organization is never responsible for more than the monthly payment determined ahead of time, while with self-funding, there is potential for you to be responsible for additional costs.
As a result, level funding may cost more upfront per month for your organization than self-funding throughout the plan year.
However, if funds for claims payment have not been used,at the end of the year they are returned to you, so this plan type still offers potentially significant cost savings over fully-insured plans, with lower risk than self-funded plans.
Level-funding may be a great option for you to save money on benefits, especially if you are a small organization with healthy employees. Consider the benefits of level-funding when planning for open enrollment.
Want to learn more about the difference between self-funded, level-funded and fully-insured benefit plans? Download our free guide today.